I was invited to South Africa earlier this month to participate in a Competition Tribunal about a proposed merger of Walmart and South African chain Massmart. Facing falling sales in the U.S., Walmart seeks a stake in emerging African markets, and last September offered $4 billion to purchase a controlling portion of Massmart.

Ken Jacobs talks with members of the Anti-Walmart Coalition.

South Africa has the world’s greatest gap between rich and poor, and about 25 percent unemployment. Though the country is desperate for international investment, South Africa law requires a strict process that protects competitiveness before mergers and acquisitions are approved. With large mergers, such as the proposed Massmart-Walmart merger, a “Competition Commission” conducts an investigation and makes a recommendation to a “Competition Tribunal” for decision. In addition to considering whether these types of mergers will promote or stifle competitiveness, the Commission and Tribunal must also consider whether its recommendations will advance the social and economic welfare of South Africans.

I arrived in Pretoria on May 9. From inside the Tribunal I heardprotesters singing outside. Local unions and communities have formed an Anti-Walmart Coalition to fight the Massmart-Walmart merger. One of the protesters, Mabel Mofokeng, told me she had worked for Game, an affiliate of Massmart, for 27 years. Ms. Mofokeng was one of 503 workers laid off by Massmart leading up to its proposed acquisition. On July 25, 2010, at 1:30 p.m., she was escorted into the business office at her job, told that she was being laid off, and then escorted out by a security guard.

The layoffs were part of a move to a centralized distribution center like those used to secure famously low prices at Walmart. Inside the Tribunal on the witness stand, Massmart CEO Grant Pattison denied that the layoffs had anything directly to do with the acquisition. He argued that this was the culmination of a process that began before Walmart’s purchase offer. “What you do when you hear that Walmart is coming into your market,” he explained, “is to adapt similar practices.”

When asked by the Attorney for the Ministry of Economic Development how much he stood to make from the acquisition, Pattison acknowledged owning 2 million shares of Massmart. Walmart is offering 148 Rand (approx. $22) per share to purchase 51 percent of the company. Between a premium price on the shares he would sell and an anticipated reward of stock options once the deal goes through, the Government Attorney argued that Pattison is likely a to gain a windfall of several million dollars. Pattison denied the suggestion that his testimony might be influenced by his self-interest — in terms of his general financial situation, he noted, it’s really not that much money.

"South African Economy is Not 4 Sale!" reads a sign wielded by a member of the Anti-Walmart Coalition.

The contrast of wealth, power, and job security inside and outside the Tribunal could not have been greater.

Pattison refused to commit to any conditions for the merger related to labor or commitments to sourcing products from local suppliers, including promises to the laid-off workers. He testified that he had offered laid off union members the right to apply individually for newly-created jobs. Workers were largely replaced in the distribution centers by contracted workers and Massmart has opened 12 new stores since the lay-offs. The workers would have to apply as new employees, accepting lower pay. A high percentage of the new positions are classified as “casual labor,” i.e., part-time jobs without a regular schedule.

This was little comfort to Linda Maseko (right) who was protesting on the steps outside the Tribunal. She worked at the company for 17 years before being laid off. “We’ve lost everything,” she told me. She could no longer meet the payments on her house, and was worried about how to cover school expenses for her 11-year-old daughter.

The Competition Commission has since recommended that the merger be conditioned on Walmart agreeing to reinstate the laid-off workers and abide by existing labor agreements for three years. They made no recommendation related to procurement. The Tribunal is expected to rule on Friday.

Comment to “Balancing economic development and social welfare in South Africa: The Walmart/Massmart merger”

Massmart holdings which owns Builders Warehouse and Tile Warehouse, embarked on a layoff programme of employees and local suppliers, from as early as Jan2010. Most of the Tile Warehouses closed down by the later part of 2010. In the last 8 months of 2010 within Builders Warehouse and now known as Tile and Floor, a considerable amount of employees had been worked out and the local supply of products replaced by 80% import. Some of these employees have been in the group for several years.
Its obvious that Walmart’s bid to Massmart, to spring clean on employees and suppliers. The loss of employment and the loss of local suppliers, is inevitable.